ISLAMABAD: The Federal Board of Revenue (FBR) has finalised proposals for the FY17 budget to rationalise customs tariff under an ongoing programme of tariff reforms.

The reforms include reducing the number of maximum tariff slabs from five to four and the customs duty to 20 per cent from 25pc.

The reduction in tariff slabs is a condition attached with the International Monetary Fund programme.

An official source told Dawn the third phase of tariff reforms would be implemented from July 2016.

Within the FBR, there is a strong support for a maximum of three tariff slabs: 5pc (raw materials), 10pc (intermediary goods) and 20pc (consumer goods). However, detractors believe the three-slab mechanism would not treat a certain category of products.

The official said the maximum slab was expected to be brought down to 15pc in the next three years.

The FBR will make changes in the existing tax rates on various commodities to accelerate revenue as well. The government imposed regulatory duties on several hundred products to raise revenue and protect the local industry.

“There is a possibility to raise regulatory duty on more products in the coming budget,” the official said, adding that it has become an easy tool for revenue collection.

The official argued that owing to fall in commodity prices on international market, it was necessary to levy regulatory duty on import of such products.

The government has projected a revenue collection target of Rs3.735 trillion for the year 2016-17.

On the customs side, the official said no new taxes would be implemented. “We may only withdraw the exemptions available to special sectors through statuary regulatory orders (SROs),” he said, adding that loopholes in the tax machinery would be plugged.

He said the budget would focus on measures aimed at attracting foreign direct investment (FDI) and rationalise duty on various commodities to stimulate economic growth which would help absorb the jobless youth.

“It will be easy to collect the next year’s tax target because concrete and practical steps will be taken in the coming budget to generate additional revenue,” the official said.

He believed that existing taxation system had become flawed with the issuance of multiple SROs, schedules, multiple rates and slabs.

“We have identified the sectors enjoying specific duty exemption. We will apply these concessionary duty rates to all users through customs tariffs, instead of SROs to some specific taxpayers,” the official said.

Instead of reduction in customs rates, the Tariff Reform Commission (TRC) has proposed to the FBR three specific recommendations for consideration in the budget 2016-17.

An FBR source told Dawn the reform commission has pointed out to the tax machinery to consider tax evasion of Rs26 billion in import of 11 or 12 products. These products are mostly importable from China, the United Arab Emirates, etc.

The reform commission, according to the source, asked the FBR to engage with tax department of these countries to plug the under-invoicing of these products.

The commission also identified corruption at the clearance level. There was no concrete evidence of this corruption, the source said, adding that the commission mentioned that the lower staff demand product-specific amount from importers.

The commission recommended recruitment of young staff, because most of the existing members were aged above 55 years of age.

It also recommended ending the distinction between commercial and industrial importers. The commission is of the view that the industrial sector import-specific products at lower rates in excess of consumption and selling on the domestic market.

Published in Dawn, May 1st, 2016